Crisis Creates Opportunity for Small-Bank Programs

A silver lining exists in the ongoing financial crisis for small banks with strong balance sheets — this is an ideal time for them to woo customers and executive talent from the faltering titans and to build their investment programs, according to third-party marketers.

"The larger banks are facing tougher times today, and community banks are positioning themselves to grow and seize opportunities in the marketplace," said LeAnn McCool, the national sales manager at Primevest, which supplies brokerage services to 350 small banks.

Lynn Niedermeier, the president of Invest, which works with 150 banks, said, "In the past the big question [among community bankers] was, 'How will I compete with Smith Barney, Goldman Sachs and Merrill Lynch?' And today the answer is, 'Now you can.' "

Program managers and advisers are seizing this opportunity to expand their client bases and brokerage programs by stressing stability and community ties, and delivering personal service and advice.

Research indicates that deposits are moving to community banks from big banks with staggering losses, and financial advisers say they are turning this to their advantage.

Nearly half the small- and middle-market businesses in the country are either seeking a new bank or would entertain the notion of switching, if shown a compelling offer, according to a study of 670 companies released last month by Greenwich Associates. This is up dramatically from a year earlier, when fewer than one-third said they would consider switching.

On the retail front, Bancvue, a provider of products and consulting to community banks, has reported that deposits in its reward checking accounts jumped 175% last year, to $7.6 billion — about 40% of which came in new relationships with banks.

"Community financial institutions are winning back consumers from faltering megabanks and investment banks," said Dan Shafer, the chairman of Bancvue. "Americans are indicating a preference for investing locally, and they benefit from higher yields, fiscal safety and customer service."

Jim Quinlan, the president of Beneficial Advisors, a unit of the $3.5 billion-asset Beneficial Bank in Philadelphia, said it is making inroads against larger competitors. Many larger banks are in trouble, whereas Beneficial has community roots and is financially sound. Ad campaigns, such as "The New Beneficial" and "Starting Now," highlight the fact that it is the largest bank headquartered in Philadelphia.

Advisers stress Beneficial's hometown roots. They also mention that it declined money from the Troubled Asset Relief Program — a decision that attracted a lot of local coverage. "I fielded a call from a man who wanted to move his account out of a rival bank because, he said, 'Anybody who can lose billions in one quarter I don't trust with my money,'" he said. During 2008 Beneficial's investment program, which uses Invest, hired eight advisers, bringing its total to 10, and expanded brokerage assets under management from about $25 million to $100 million.

Harold Baker, the program manager at $350 million-asset Clearfield Bank and Trust in Pennsylvania, said many customers are leery of big banks that need government support. These banks have national scope but are often relative newcomers to the community after swallowing up a local institution.

When he talks to clients he tells them: "We're the community bank you know. We've been around since 1902, so you have an institution with a long history." More important, many of Clearfield's employees have worked for it for 20 or 30 years for it, so customers are familiar with them.

"We don't have to sell the bank; what we have to sell is the idea of being an investor, not just a saver," Baker said. "But because of [our reputation], many of our customers are willing to listen."

Baker, who works with the third-party marketer Sorrento Pacific, said strong personal service has helped Clearfield double its assets under management, to $28 million at Dec. 31, from a year earlier. He said he expects an additional $8 million to $10 million this year, for about 30% year-over-year growth.

Since Wells Fargo & Co. took over Wachovia Corp., Greylock Federal Credit Union in Pittsfield, Mass., which has more than $1 billion of assets under management, has seen an upturn in business. "They come in and say, 'I don't know Wells Fargo,'" said Michael Fazio, who manages Greylock's brokerage through LPL Financial Institution Services. "Our phone is ringing off the hook. They'll say: 'My bank's name has changed!' or 'The person I used to talk to doesn't work there anymore!'" Many such prospects are referred by branch employees trained to pick up on customer concerns.

Fazio and his three bank reps offer prospects a free financial assessment, including a 401(k) review. He said half the people who get the review become clients.

Fazio also gets referrals through local professionals, particularly accountants with whom he has built relationships.

Recently, he got a call from an accountant who had two clients, a husband and wife, who were unhappy with the service at a local trust company.

"The portfolio manager wasn't responding in a timely manner to their inquiries. So they came to see me with their account statement in hand, $1.7 million," he said. "They weren't sure about the investment allocation and the objectives — really basic stuff. And at the end of the meeting, they said, 'We'd like to work with you,' and signed the transfer documents during the first meeting."

Art Hornak, the program manager at Sun National Bank in New Jersey, said he and his nine reps offer complimentary financial reviews. To improve customer service, he has also increased the number of licensed bank employees from 8 to 18, with the goal of adding 10 per year for the next three years.

Like the licensed bank employees at Greylock, those at Sun National are trained to pick up on clues that customers are unhappy. Last year, the licensed bank employees averaged three to four referrals per week to advisers. The licensed bank employees take three-day training sessions, with quarterly follow-ups.

Program managers are also grabbing share by hiring brokers displaced by mergers or fed up with the uncertainty and diminished reputation of their current institutions.

The attributes that make local banks attractive to customers can also make them attractive to brokers who want a stable workplace tied to a cohesive community.

"Advisers are looking for a good, quality place to work," said Michael Haggerty, the director for financial planning services at CommunityAmerica Credit Union in Lenexa, Kan. "We're recruiting from all the other banks and wire houses. It's really an easy process."

Haggerty, who uses CUSO Financial Services, hired five reps last year for a total of seven. From the start of 2006 to the end of 2008, brokerage assets under management grew 50%, to $140 million.